There is no forest, just a bunch of trees

As humans, we instinctively simplify and abstract reality to make life easier to understand. We group things together and call them by a single name, and treat them as if they were a single unit. We don't see a trillion grains of sand, we see a beach. We don't think about each tiny water droplet that makes up a cloud. This method of abstraction is incredibly useful, and everyday life would be impossible without it. The problem arises when we forget that these abstractions do not actually exist in reality, but are only models of reality that are created within our minds. It's not clear if the universe is made entirely of 'particles' at the smallest scales, but if it is, then these particles are the ONLY things that exist in reality. Everything else that we think we know is just an abstraction of reality that is composed of these particles. In all likelihood, these 'particles' are just abstractions of more fundamental elements we have yet to detect or understand.

It is this mistaking of models for reality that leads to many of the problems we see in the world. It plays a huge role in the current economic crisis and in state-created problems in general. Ben Bernanke and the rest of the Federal Reserve have a model of human interaction in their minds they call the economy, and they base their interactions with the real world off of this model. The problem is, there is no 'economy' in reality. The economy ONLY exists as a model in their minds. They assume their model is accurate enough that they can predict real world consequences of their actions, but this assumption fails time after time, after time. You can't direct something you don't understand, and clearly our rulers have a tenuous grasp on reality at best.

Edit 12/27/10:
I just stumbled across an interview between Joe Nocera, New York Times columnist and co-author with Bethany McLean of All the Devils Are Here, and EconTalk host Russ Roberts that summed up this problem rather well. You can listen to an excerpt below:

The full version is available at the Library of Economy and Liberty and is really worth a listen if you want to better understand the economic mess we're in.

This mistake is at the heart of problems that result from top-down rulership. A top-down approach will only work if the ruler has an accurate model of reality to work from. As we all know, modeling and predicting reality is really, really hard. There are just far too many variables for any one person or group to understand. For anyone to believe that they can direct such a vast and disparate collection as the financial interactions of 300 million individuals is obnoxiously arrogant, and the very belief that these interactions need direction proves they don't understand reality well enough to direct it.

What do you see? A forest? There are no forests in reality, that is just an idea humans have for a group of trees. And what is a tree? They don't really exist either. That's just a trillion plant cells working together towards self-replication. And cells aren't real either. That's just an idea we have for a certain set of molecules that interact within a membrane. And a molecule is just a concept we humans created to model atoms that stick together, which is another simplification of a set of subatomic particles. If you can see the forest for the trees, remember it only exists in your mind.